The regional pricing of risk: An empirical investigation of the MENA equity determinants

Guesmi, Khaled and Kablan, Sandrine and Belgacem, Aymen (2015): The regional pricing of risk: An empirical investigation of the MENA equity determinants.

Abstract

Using a sample of five-MENA emerging countries (Egypt, Tunisia, Morocco, Jordan, and Turkey) during the period 1996-2013, this study highlights the main factors that might influence regional integration of stock markets. We propose an advantageous econometric approach based on a conditional version of the International Capital Asset Pricing Model (ICAPM) to explore major sources of time-varying risks. We specifically apply the multivariate BEKK-GARCH process to simultaneously estimate the ICAPM for each country. The study puts in evidence that inflation, volatility of exchange rates, yield spread, current account deficit, dividend yield and economic growth are among the key determinants of regional integration in the MENA context whatever is the measure of exchange rate risk.

• Item Type: MPRA Paper
• Language: English
• Keywords: Multivariate GARCH, regional integration, ICAPM, MENA
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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